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UNCLAS SECTION 01 OF 04 ISLAMABAD 000353 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD EFIN EINT EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON THE ECONOMIC ISSUES FROM 13 FEBRUARY 2009 
 
REF: ISLAMABAD 305 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
¶1. (SBU) An IMF assessment team will consult with GOP officials in 
Islamabad and Dubai over the next two weeks to determine progress in 
meeting their benchmarks for the Stand-by Arrangement.  The team's 
report will be presented to the IMF Board by the end of March.  GOP 
estimates for Pakistan's GDP growth for the current fiscal year 
(ending June 30) had been in the 3-3.5 percent range, but the 
prevailing view among non-government interlocuters is that growth 
would remain stagnant. 
 
¶2. (SBU) On January 31, the State Bank of Pakistan (SBP) announced 
that it was leaving the discount rate of 15 percent unchanged 
(reftel).  The business community had hoped for an easing of rates, 
and rumors had been circulating that a lower rate was to be 
announced.   Consulate General Karachi reports that the business 
community there was "dismayed" by the decision.   Presidents of two 
major business associations - the Federation of Pakistan Chamber of 
Commerce and Industry (FPCCI) and the Karachi Chamber of Commerce 
and Industry (KCCI)  - expressed their unhappiness to the Consul 
General, citing interest rates as just one more factor (along with 
energy costs and unreliability) harming their competitiveness.  Ayub 
Mehar of FPCCI complained that the SBP had not consulted with the 
business community prior to the decision, although KCCI President 
Anjum Nisar said he had given his views to the State Bank governor. 
FCPCI President Sultan Ahmad Chawla said the high rates have 
hindered economic initiatives such as the Long Term Facilities 
Financing program and the Equity Transfer Fund.  (Comment:  GOP 
policy makers are in a difficult position of trying to wring out 
inflation without unduly stifling growth; inflation has not fallen 
appreciably since November, when the discount rate was first raised 
to 15 percent, leaving real interest rates negative.) 
 
¶3. (SBU) An Asian Development Bank (ADB) team of financial experts 
from Manila briefed ECON February 11 on their program and budget 
support loans to the GOP.  They plan to disburse USD 1.75 billion in 
Pakistani FY08/09 and USD 1.428 billion in FY09/10.  The ADB has 
programs on accelerating economic transformation (removing economic 
distortions such as subsidies and circular debt in the energy 
sector) and strengthening the financial sector (consolidated 
supervision of the banks and corporations).  They are working with 
the State Bank and the Securities and Exchange Commission of 
 
ISLAMABAD 00000353  002 OF 004 
 
 
Pakistan.  They are also working on social safety net programs and 
assisting the GOP with its National Trade Corridor program.  We have 
sent the chart with a break down of their programs to EEB and SCA. 
 
¶4. (SBU) Secretary Suleman Ghani of the Ministry of Commerce led a 
Pakistani trade delegation to India for the two day South Asian 
Association for Regional Cooperation (SAARC).  The main topics on 
the agenda included the South Asia Free Trade Area (SAFTA) and ways 
to confront the global economic downturn in South Asia.  (Comment: 
The delegation is returning to Pakistan on February 13. Ministry of 
Commerce told ECON that details of visit would be released next 
week.) 
 
¶5. (SBU) In a controversial move, Prime Minister Gilani transferred 
Finance Secretary Dr. Waqar Masood from the Ministry of Finance and 
appointed him Secretary in the Textile Division.  The decision was 
made over the objection of Advisor to Prime Minister on Finance, 
Shaukat Tarin, who was on a state visit to Japan. Masood is still on 
the job, however, and his replacement Salman Siddiqui, formerly with 
the Ministry of Kashmir Affairs, has not yet made an appearance. 
 
¶6. (SBU) Advisor to Prime Minister on Finance Shaukat Tarin traveled 
to Japan to seek economic assistance and to give details on 
Pakistan's economic reform efforts.  Tarin also asked Japan to set 
exclusive economic zones in Karachi and Gawadar. The Government of 
Japan expressed full solidarity with Pakistan in its efforts on the 
war on terror and announced Non-Project Grant Assistance totaling 
USD 27 million in the underdeveloped areas of Balochistan and NWFP. 
 
¶7. (SBU) The Karachi Stock Exchange closed at 5,399.36, losing 30.07 
points on Thursday, February 12, 2009.  The index remains down 5 
percent since the start of 2009 and down 65.2 percent from its 
lifetime high of 15,676.34 on April 18, 2008. 
 
- - - - - - - - - - 
BANKING AND FINANCE 
- - - - - - - - - - 
 
¶8. (SBU) Banks are increasingly reluctant to grant loans to local 
industry in the Northwest Frontier Province (NWFP) due to slowing 
economic activity and growing violence.  Sarhad Chamber of Commerce 
and Industry (SCCI) president Sharafat Ali Mubarak reportedly said 
that "there are about 2,500 industrial units (companies) in the 
province and only 594 of these are functional." 
 
¶9. (SBU) The Ministry of Finance has reportedly instructed the State 
 
ISLAMABAD 00000353  003 OF 004 
 
 
Bank of Pakistan (SBP) to cut off credit to Pakistan Railways. 
According to Business Recorder, Pakistan Railways has continuously 
surpassed its overdraft limit.  Currently, Pakistan Railways' 
overdraft amounts to PKR 34 billion (USD 430 million), more than 
eight times the sanctioned limit of PKR 4 billion (USD 50 million). 
 
¶10. (SBU) On February 11, the State Bank of Pakistan (SBP) announced 
that personal loans and credit cards would be capped at PKR 1 
million (USD 12,658) per person.  The SBP also stipulated that 
before issuing any loans/credit cards, banks needed to obtain a 
consumer credit report from the Credit Information Bureau of the 
SBP.  In addition, applicants will need to divulge any existing 
exposure from the entire banking sector.  (Comment: We have heard 
from commercial banks here that credit cards were being issued with 
little regard to creditworthiness of potential customers.  High 
interest rates are causing banks' consumer portfolios to 
deteriorate.) 
 
- - - - - 
BUSINESS 
- - - - - 
 
¶11. (SBU) Insanhullah, the Chairman of Pakistan's Stone Development 
Company (PASDEC), announced that mining and excavation have 
increased in the Federally Administered Tribal Areas (FATA) with an 
export target of USD 500 million by 2013.  Mining and quarrying 
contributes nearly 0.5 percent to Pakistan's Gross Domestic Product 
(GDP), with an estimated value of PKR 16 billion (USD 200 million). 
 
 
¶12. (SBU) Karachi Port Trust plans to become the first port in the 
world to be able to handle ships with a draft of 18 meters.  This 
will allow cargo ships of over 100,000 dead weight tonnage to berth 
at the port.  According to Pakistani media, work on a deep water 
container terminal will begin in March 2009 and be completed in four 
years.  The total cost is estimated at PKR 19 billion (USD 237 
million).  Most ports around the world can handle ships with a draft 
of 16-17 meters. 
 
- - - - - - - - - 
ENERGY AND POWER 
- - - - - - - - - 
 
¶13. (SBU) The United Arab Emirates (UAE) has offered to donate a 
power plant of 320 MW capacity as a gift to the people of Pakistan 
to help overcome energy crisis.  Minister for Water and Power Raja 
 
ISLAMABAD 00000353  004 OF 004 
 
 
Pervez Ashraf signed an MOU on February 4 in Dubai to work out the 
detailed plan for implementation of the agreement covering the 
dismantling, packing and shifting of the plant to Pakistan. 
(Comment: Zarar Aslam, Additional Secretary Ministry of Water and 
Power, told ECON that negotiations started two years ago and 
confirmed that both governments have reached an agreement. The UAE 
Government will bear the cost of dismantling the plant (which is not 
particularly efficient) and transporting it to Pakistan. The GOP 
plans to divide it into three smaller plants - two of them to be set 
up in Punjab and one in Karachi to produce electricity during hours 
of peak demand.) 
 
- - - - - - - 
AGRICULTURE 
- - - - - - - 
 
¶14. (SBU) The Economic Coordination Committee (ECC) directed the 
Trading Corporation of Pakistan (TCP) on February 3 to import 
200,000 metric tons of refined sugar.  The decision was made in an 
effort to stabilize the supply and price of sugar in Pakistan. 
 
¶15. (SBU) On February 6, The News reported that Federal Commerce 
Minister Makhdoom Amin Fahim announced an inquiry into a recent TCP 
tender for rice.  The TCP is suspected of embezzling approximately 
PKR 250 million. On February 12, Business Recorder reported that the 
TCP was also accused of violating procurement rules on a November 
2008 imported wheat procurement tender.  Comment: The Ministry of 
Commerce confirmed with ECON that it has begun a probe into TCP's 
recent tenders. 
 
¶16. (SBU) The News reported that the SBP issued guidelines on 
Islamic financing to help banks formulate specific Shari'a-compliant 
products for agricultural loans.  Developed with stakeholder input, 
these guidelines cover financing of farm and non-farm sector 
activities including livestock, fisheries, poultry, horticulture, 
and orchards. 
 
¶17. (SBU) The Trading Corporation of Pakistan has received a bid 
from Cargill for 50,000 tons of U.S. white wheat. This is the first 
U.S. wheat bid that can be financed using the recently approved USDA 
GSM-102 credit guarantee program.  (Comment: In an effort to improve 
the wheat tender, TCP has invited members of the wheat trade to meet 
on February 15 to address the perceived shortcomings of the previous 
wheat tender.) 
 
PATTERSON